Japan's Takenaka vows action

SURGERY In a televised interview, the Japanese finance minister swore he would do whatever it took to reform Japan's banks, but analysts say they've heard it all before

AFP , TOKYO

Economics and financial czar Heizo Takenaka said Sunday he would not hesitate to take drastic action to restore the health of Japan's mega-banks, saying they were "not in a healthy condition."

"Japanese mega-banks are no way in a critical condition, but it is true that they are not in a healthy condition," the minister for economic and financial affairs said over the private Asahi television network.

Asked if he believed the giant banks needed "surgery," Takenaka said: "I will do it if necessary."

"We would not hesitate to do it as we steadily work towards our goal of halving bad loans [held by banks]," he said.

Takenaka's Financial Services Agency aims to halve the ratio of bad loans on banks' balance sheets -- cited as a root cause of Japan's economic slump -- by March 2005.

In May, Japan's fifth largest banking group, Resona Holding Inc, was forced to seek government help to boost its depleted capital base.

The government approved plans in June to inject ?1.96 trillion (US$16.6 billion) in public funds into the group's core bank, Resona Bank.

The rescue of the troubled Resona has turned market eyes to possible government action on other major banks.

Takenaka said there were bright signs in the Japanese economy, boosting the Tokyo Stock Exchange's key index by some 30 percent over the past 10 weeks, the sharpest rise since 1952.

"It is an undoubted fact that there is a brighter prospect over the economic future" as seen in a series of stronger-than-expected economic data, he said.

But he cautiously added he needed to watch moves of the whole economy before declaring the Japanese economy has entered a recovery, as the Nikkei's surge did not mean the nation's gross domestic product rose by the same margin.

Takenaka said he believes the world's second economy was likely to pick up late this year on the strength of the US economy and higher capital spending by Japanese corporations.

The Nikkei-225 average in Tokyo has surged 27 percent from a two-decade low struck in late April, powered by renewed confidence in the US economy and signs of life in Japan.

The minister also told the public Japan Broadcasting Corp (NHK) the government needed to pay heed to the recent falls in government bond prices and simultaneous rises in their yields although they were within expectations.

He said the higher interest rates stemmed from the brighter prospect for the Japanese economy.